Wage trends and policies within the crisis Training seminar on Wages, Turin, June 29, 2010 Turin, June 29, 2010

Real Wage Growth,

The Wage Share Decline, = Decline in wage share = Increase in wage share = Data not available Source: AMECO (EC) UN National Account Systems

Increasing Wage Inequality, Source: AMECO (EC) UN National Account Systems = Increase in wage inequality = Decline in wage inequality = Data not available

Other global wage trends Low pay and working poor Low pay and working poor Poor collective bargaining on wages Poor collective bargaining on wages Poor wage practices along the supply chain (wage arrears; minimum wage; overtime; punitive pay systems etc.) Poor wage practices along the supply chain (wage arrears; minimum wage; overtime; punitive pay systems etc.) Wage problems exacerbated by the current economic crisis Wage problems exacerbated by the current economic crisis

The current context : recession after years of strong economic growth, due to a financial crisis but also other causes, with two wage issues: : recession after years of strong economic growth, due to a financial crisis but also other causes, with two wage issues: The origin of the crisis lies in unequal distribution of income between capital and labour that limited households’ ability to consume other than through debt (Stiglitz) The origin of the crisis lies in unequal distribution of income between capital and labour that limited households’ ability to consume other than through debt (Stiglitz) Excessive executive pay has encouraged risk-taking and short-term profits rather than sustained company performance. At the same time increasing number of low paid at the bottom Excessive executive pay has encouraged risk-taking and short-term profits rather than sustained company performance. At the same time increasing number of low paid at the bottom Global economic crisis: After 5 percent per year in 2006 and 2007, growth fell to 3.2 percent in 2008 and 1.3 percent in 2009; recovery in 2010? Global economic crisis: After 5 percent per year in 2006 and 2007, growth fell to 3.2 percent in 2008 and 1.3 percent in 2009; recovery in 2010?

What Impact on Wages? Real Wages Global Wage Database on 50 countries in 2008 and 31 until first semester 2009 at: Global Wage Database on 50 countries in 2008 and 31 until first semester 2009 at: Real wage growth declined from 4.7% in 2007 to 1.5% in 2008; In G-20 declined from 1.1% in 2007 to 0.0% in 2008 Real wage growth declined from 4.7% in 2007 to 1.5% in 2008; In G-20 declined from 1.1% in 2007 to 0.0% in 2008 Worse in Real wages in 2009 fell in more than half of the countries; most significant examples: Germany, Korea, Japan, Taiwan, Mexico, South Africa Worse in Real wages in 2009 fell in more than half of the countries; most significant examples: Germany, Korea, Japan, Taiwan, Mexico, South Africa

Real wages in 2008–2009 (annual % growth)

What Impact on Real Wages? Annual Wage Growth 2008 in Selected G-20 Countries

What Impact on Other Wage Trends? Increasing wage disparity is observed in a number of countries, as in the US and also in the UK where the gender pay gap seems to have also increased Increasing wage disparity is observed in a number of countries, as in the US and also in the UK where the gender pay gap seems to have also increased Increasing social conflicts on wages everywhere Increasing social conflicts on wages everywhere Unemployment figures suggest that there will be greater pressure on wages in the future Unemployment figures suggest that there will be greater pressure on wages in the future

Increase in the wage share,

Minimum wages in the crisis Examples: Ireland has opted for a freeze in minimum wages. Poland has decided to raise the minimum wage by 15% in real terms. Out of a sample of 86 countries, we find that in half the countries (43) have increased minimum wages in real terms

Work Sharing with wage subsidies Work sharing is a reduction in working time intended to spread a reduced volume of work over the existing workers to avoid layoffs. To avoid proportional reductions in wages, the Government must provide wage subsidies. Work sharing is a reduction in working time intended to spread a reduced volume of work over the existing workers to avoid layoffs. To avoid proportional reductions in wages, the Government must provide wage subsidies. In Germany, measures to promote “ Kurzarbeit ” with wage subsidies have paid off so far. In Q GDP has fallen by 3.5% and weekly working time by 3.4%. Yet, thanks to subsidies, wages have only declined by -0.4% and employment has increased 0.4%. Thus, the overall share of GDP going to wages has increased. In Germany, measures to promote “ Kurzarbeit ” with wage subsidies have paid off so far. In Q GDP has fallen by 3.5% and weekly working time by 3.4%. Yet, thanks to subsidies, wages have only declined by -0.4% and employment has increased 0.4%. Thus, the overall share of GDP going to wages has increased.

Trends in Wages in 2008 and 2009 In general, the downward trend in wages raises questions about the ability of workers and their families to sustain consumption, especially if government rescue packages are phased out too early In general, the downward trend in wages raises questions about the ability of workers and their families to sustain consumption, especially if government rescue packages are phased out too early Consider that in the U.S., every 1% growth in nominal wages corresponds to about US$ 60 billion that workers and their families can spend on consumer goods and services Consider that in the U.S., every 1% growth in nominal wages corresponds to about US$ 60 billion that workers and their families can spend on consumer goods and services

Wage policies: some considerations Minimum wages “Reactivation” of statutory minimum wage policies ( ): “Reactivation” of statutory minimum wage policies ( ): increase in real terms (by 6.7% globally) increase in real terms (by 6.7% globally) Minimum wage/average wage ratio most frequently at 40% Minimum wage/average wage ratio most frequently at 40% Increase in real minimum wages helped : Increase in real minimum wages helped : reduce inequality in the bottom half of the wage distribution reduce inequality in the bottom half of the wage distribution reduce the gender pay gap reduce the gender pay gap enhance purchasing power of MW earners enhance purchasing power of MW earners

Wage policies: some considerations Collective Bargaining Overall decline in the coverage of collective bargaining, due also to increase in non-standard work Overall decline in the coverage of collective bargaining, due also to increase in non-standard work Where collective bargaining coverage is high, wages are more responsive to economic growth and overall wage inequality narrows down Where collective bargaining coverage is high, wages are more responsive to economic growth and overall wage inequality narrows down

Wage elasticity is higher in countries with higher collective bargaining coverage